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Creative Real Estate Financing That Works
If you are about to enter into the world of real estate financing because you intend to buy real estate, whether to live in or rent, but know little about mortgages, you need to do a little research before talking to mortgage lenders. There are so many different types of real estate financing options available that you can easily get stuck in a long-term mortgage that is not right for your needs. There are a few basic types of real estate financing. The first two categories you should keep in mind are what the building will be used for. Residential mortgages are for your primary home where you and your family will reside most or all of each year. Residential financing carries the lowest mortgage interest rages. Buy-to-let real estate financing is for properties you purchase with full intention of only using these are rental properties, never planning to live in the unit or units yourself. Buy-to-let interest rates are usually higher than residential but much lower than the last category. Commercial real estate financing is used for buying real estate property that is only for commercial use. These include warehouses, office buildings and similar properties which are not usually used as places people call home. Inside each of these categories are many types of real estate financing options. Real estate financing known as "conventional" loans are those mortgages that have a set amount of interest and set payment amounts which remain the same over the life of the financing. The payments can never go up or go down based on the lender changing the rules because of economic variations. This is the most common type of mortgage in all various real estate financing categories and it works wonderfully for the vast majority of people. There are, however, other types for specific needs. Adjustable rate mortgages (ARMs) are a form of real estate financing where payment amounts and interest rates can change periodically over the loan period based on economic fluctuations. Usually these mortgages are "capped" for the first three to seven years. The ARM caps the number of years before the interest rate can be changed. After that, there are specific periods at which the interest rate can change again – either up or down. This type of real estate financing is great for young people who can afford more later as their income grows. Interest only real estate financing is sometimes used by young professionals buying a first home. In this creative financing for real estate, the amount of the minimum payment is only the amount of the interest on the loan. Each month, the home buyer can pay more if they choose and have that applied toward principle, but they can not pay less than the minimum. Eventually, all the principle has to be repaid and the interest is accruing all the time. Yet, for a young couple just out of college who will experience huge salary increases in coming years, this may allow them to own the home they want at payments they can afford until their income rises. Jumbo mortgages are a type of real estate financing for large homes or homes in expensive areas. Often called the "California mortgage" because so many of these loans are needed to purchase properties in California, these loans are over $200,000. This certainly isn't the type of financing for a starter home but it can be a blessing for those who are ready to move up to the big time. Bi-weekly real estate financing requires payments be made every two weeks, causing 26 payments to be made in one calendar year. This can actually save thousands over the life of the financing. Of course, you can also obtain a conventional loan and simply make the additional payments, which will have a similar effect. Use online mortgage calculators to determine how much you could save if you chose to pay every two weeks instead of monthly. If you learn that you have obtained a real estate financing option that isn't working well for you, you should look into refinancing. This allows you to convert one type of loan into another, different financing option. There are other types of real estate financing such as bad credit home loans, FHA and VA mortgages, construction financing and many more. If fact, these smaller categories of financing options are too numerous to list here. However, if you find that none of the more common creative financing options suit your needs to a tee, you can do a little research or ask your online real estate finance professional to fill you in on some of the less-often used financing possibilities. There is no reason that anyone who truly wants to own a real property, whether residential, buy-to-let or commercial, should not be able to do so with the creative real estate financing options available today.
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This intel was contributed by larryg
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May, 2012
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